Managing Costs in Health Programs

12/04/2014 8:00 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

Government organizations look to this featured recommendation to help manage social-benefit programs and control costs, observes Richard Moroney, editor of Upside.

MAXIMUS (MMS) seems well positioned for growth because of the need for governments to manage programs under tight budget constraints. In addition, an aging population has placed increased strain on healthcare and welfare programs.

The company’s health services business (roughly 73% of sales) is leveraged to Medicaid, Medicare, and the Affordable Care Act.

The human services business (27%) helps manage welfare, child support, and education programs. MAXIMUS is growing its footprint in foreign markets, including Australia, Saudi Arabia, Canada, and the UK.

The company has a strong balance sheet and ample cash flow, providing flexibility to fund growth opportunities and return capital to investors.

September quarter results, due November 13, are expected to show 2% per-share profit growth and 16% sales growth.

For full-year 2014 ended September, per-share earnings are expected to total $2.09, up 31%, reflecting new contracts and acquisitions.

For fiscal 2015, the consensus calls for per-share earnings of $2.27, a conservative figure considering the company’s strong market position and tendency to deliver profit surprises.

MAXIMUS, with a Quadrix Overall score of 92—out of a possible 100—is being initiated as a Buy.

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